Local Government Procurement

Methods of Evaluating Price in Tenders

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Methods of Evaluating Price in Tenders

So you thought you knew how to evaluate tender pricing. Let’s look first at price options. How many of these 10 options can you tick?

Prices can be:
• Specific
• Lump sum
• Fixed price
• Firm fixed price
• Schedule of rates
• Variable
• Cost + fixed price
• Cost + incentive
• Cost + max. fee
• Fast Track

Most readers will be familiar with the above. Most of you will use the lowest price or the most economically advantageous tender (MEAT). Lowest price usually means the lowest tender price for a compliant bid.

So now we look at options to evaluate and compare offers. I’ve listed 13 options below, some of which may overlap, but each of which we all need to understand regardless.

Methods to score:
• Qualitative narrative
• Matrix comparison (Comparative assessment & ranking)
• Inverse cost
• Brookes Law
• Least cost (lowest tender price as set out in the tender)
• Target price/Fit to Budget (sometimes with a pain/gain sharing mechanism)
• Fit to budget
• Normalising
• Inverse price
• Median or Average (Mean average)
• Value Scoring:
o Cost effectiveness ratio
o Relative Value Cost (RVC)
o Price Quality Method (PQM)
o Quality Value Method (QVM)
• Whole of lift cost
• Sensitivity analysis

In the coming months we’ll look at each of these. Today, we will do the qualitative narrative.

Using a qualitative approach, each evaluator makes their own assessment based on their personal opinion. This will often rely on personal experiences, intuition, understanding of the tender itself and the evaluator’s personality e.g., tough or generous evaluator. Evaluators then meet to discuss the tenders received, strengths and weaknesses, with the aim being to seek a consensus. Usually this is a non-scored rationalisation and analysis approach.

The qualitative method is not suitable for complex or technical tenders or where value for money is sought. It is probably most commonly used/most suitable for expressions of interest or simple requests for proposals. (The qualitative narrative could be scored as a means of secondary support to the written opinions.)

In the next LGP News, we will consider some more options to evaluate and compare offers.

References:
Contract Management in Australia John F James (Out of print)
Issues in Evaluating Public Sector Tenders Procurement Lawyers Association June 2010 www.procurementlawyers.org

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